Bonds lead losses as Fed rate hikes hit

Asian equities limped to a fourth consecutive weekly decline on Friday and bonds took heavy losses as investors scrambled to catch up with the US Federal Reserve’s interest rate outlook amid nervous currency markets. at the end of a crazy week.

Fed members’ projections for aggressive hikes and consistently high rates over the next year have triggered another round of dollar buying that has put other assets on the run.

Global equities hit a two-year low on Thursday and fell 3.0% this week. The euro and yen dipped to their 20-year lows and on Thursday the Japanese authorities stepped into the market for the first time since 1998 to buy yen and stop its run.

The resulting spike brings the yen to 142.20 per dollar and is on track for its best week in over a month and has dampened broader dollar gains for now.

In regional markets, the broader MSCI index of Asia Pacific equities outside of Japan fell 0.5% to its lowest level in two years. This week it is down 3.0%. The Japanese Nikkei was closed for a public holiday on the occasion of the autumn equinox.

Overnight, Wall Street indices fell and longer-dated US Treasuries were undervalued, pushing the 10-year yield up about 20 basis points to 3.71% as traders were trying to adjust to the outlook. US interest rates above 4.0% for some time. .

“The 10-year was catching up with the newly calibrated cash rate,” Damien McColough, Westpac’s head of rate strategy, told Sydney.

“If you think the front end will peak at 4.60%, can you really keep 10-year bond yields at 3.70%?” He said.

“It’s a very capricious price action … I think this volatility will continue in all markets in the short term (until) the rate market stabilizes.”

S&P 500 futures were up 0.1% and European futures by 0.4% at the start of the Asian session.

Interest rates are rising sharply almost everywhere, with Britain, Sweden, Switzerland and Norway among the hikers this week, leading to strong selling in European bond markets, particularly gilts.

But the Fed’s outlook has overshadowed those of the currency market, as security flows and rising yields help the greenback as an energy crisis and war on the way weigh on the euro.

The first inquiries into the manufacturing sector in Europe and the announcement by the new UK finance minister of his “growth plan” highlight the day ahead.

The euro was last at $ 0.9844 (A $ 1.4833), a fraction of Thursday’s 20-year low of $ 0.9807 (A $ 1.4777), although all eyes are on the yen. .

Japan did not disclose the extent or details of its yen purchase, but the dollar / yen lost two big legs in the last session in Asia and London on Thursday and the risk of another is probably enough. to scare speculators for a while.

“It changes the dynamics of the market in terms of risk-return for players in the short term,” said UBS strategist James Malcolm.

The Australian and New Zealand dollars have moved closer to their lowest levels since mid-2020, with the Aussie holding at $ 0.6638 ($ 1,0002) and the kiwi at $ 0.5852 ($ 0.8818) .

The pound was parked at its lowest level in nearly four decades at US $ 1.1226 (A $ 1.6915).

The Chinese yuan, at 7.0964 per dollar in offshore trading on Friday, is close to a two-year low and close to an all-time low.

In commodity markets, oil is posting a small weekly loss as rate hikes raise concerns about demand. On Friday, Brent crude oil futures were hovering at US $ 90.58 (AUD 136.49) in Asia.

Gold, which earns no income, suffered from rising US yields and was last at US $ 1,671 (A $ 2,518) an ounce.

Bitcoin also took a hit while fleeing risky assets and held at US $ 19,322 (AU $ 29,115).

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